Europe’s Stocks to Watch: Inditex, Smiths Group, Bouygues

Shares in Inditex climb over 3% in early trade Wednesday despite the retail giant’s fourth-quarter net profit falling slightly after the owner of fast fashion chain Zara invested more on opening stores in new markets and further expanded its online sales across most of the northern hemisphere.

Net profit fell to €703 million ($978.6 million) in the three months ended Jan. 31 from €708 million a year earlier, but sales rose 4.7% in the quarter to €4.8 billion, the world’s largest apparel retailer said.

Inditex had 6,340 stores world-wide as of Jan. 31, up from 6,009 a year earlier and more than twice as many as it had in 2007, the result of a quick expansion that turned the company into the world’s top fashion retailer by sales.

“We regard Inditex as one of the few beneficiaries of the ongoing, rapid channel shift to online from store-based apparel sales (given that store-based sales cannibalization remains minimal),” said analysts at Citigroup, in a note to clients.

Pretax profit was £132 million ($219.3 million) during the half-year ended Jan. 31, compared with £166 million a year earlier. Revenue fell 2% to £1.44 billion. With exceptional items and costs stripped out, pretax profit slipped to £215 million from £223 million a year earlier.

Chief Executive Philip Bowman painted a rosier picture for the second half of the year while outlining medium-term targets for the group.

However, the “new targets do not appear particularly stretched but also suggest that there is little appetite by management to break the group up,” said analyst David Larkham at Numis. “Hence we see better value elsewhere in more focused businesses (e.g. Rotork) or more actively managed portfolios (e.g. Melrose).”

“John Crane in particular appears to be holding the numbers together, Medical performance provides a big headwind to make up. To reflect this we have reduce June 2014 numbers by c.6%,” Mr. Larkham added.

Smiths Group, which has a 160-year history, delivers products and services for threat and contraband detection, energy, medical devices and communications.

Elsewhere, shares in Bouygues have dropped over 1% Wednesday after credit rating agency Standard & Poor’s placed its BBB+ rating on the conglomerate on credit watch negative, implying the agency would likely downgrade its rating by one notch within the next three months.